In Georgia, the difficult and dangerous relationship with Russia, a country that continues to occupy roughly 20% of Georgia’s land and intermittently threatens the rest of the country, as well as the ongoing domestic political disputes that occasionally take on the feel of high drama, dominate the news and the media. However, the economic problems facing Georgia-high unemployment and underemployment, inflation, partial dependence on foreign assistance and remittances, and unequal distribution of wealth-have dogged Georgia since it became independent in 1991. Thirty years ago, Georgia was one of the most affluent republics in the Soviet Union, but it has fallen well behind that level in the last two and a half decades.

Despite some gains, efforts to revive Georgia’s economy have not been fully successful. From 2004-2012 or so, Georgia was lauded as an example of economic reform of a radical liberal kind. While this won admiration from places like the libertarian Cato Institute, the accomplishment was ultimately more ideological than substantive. By the time the United National Movement (UNM) left power in 2012, there were some improvements to the economy, but unemployment was still widespread and inflation remained a significant problem. While the UNM can be faulted for placing ideological purity, albeit of a kind that was more than occasionally honored in the breach, above a more pragmatic approach to the economy, it is not entirely fair to fault them for being unable to solve a problem where no Georgian government has succeeded.

Bringing long term economic growth to Georgia will require several things to happen. The last decade showed that simply cutting regulations and improving the business climate will not be enough to rejuvenate Georgia’s economy. Low taxes and limited regulations are good, but deregulating and limiting the rights of workers turned out not to be the road to prosperity. Nonetheless, continuing some of those kinds of reforms, particularly with regards to limiting bureaucracy and strengthening the rule of law will be important for Georgia’s economic future. There are other necessary components to Georgia’s economic success as well. An educated work force, the ability to attract foreign investment that creates good jobs, good relations with a range of neighbors and potential trade partners and access to higher education and professional training are essential too.

Another necessary component to Georgia’s economic success is a clear-eyed recognition of Georgia’s relative strengths and weaknesses, and comparative advantages and disadvantages. Without that foundation, crafting a plan for Georgia’s economic growth will be almost impossible. Failing to confront, for example, the drawbacks of Georgia as a place to invest, or failing to face the country’s strategic disadvantages may make some feel good, but it will, in the long run, not help Georgia.

One example this can be seen in the way that many see tourism and transit as key parts of Georgia’s economic future. Georgia is, in my not entirely objective view, a beautiful country with fascinating things to see, nice cafes in which to hang out, great places to ski and hike, wonderful food and good wine. Similarly, it is apparent that Georgia has an important location, particularly with regards to getting oil from Azerbaijan to the west. The problem with these statements is not that they are false; they are not. Rather it is that similar arguments can be made about every country. Every poor country believes that tourism and transport are key to their future. No country wants to believe it has nothing to see, a terrible cuisine or is located in the middle of nowhere. Therefore, building an economic plan around these sectors means competing with virtually every other country.

Some of Georgia’s disadvantages are reasonably obvious and already understood. Georgia does not have great reserves of minerals or fossil fuels. This means that pulling something out of the ground and selling it is not the way Georgia is going to get rich. Similarly, Georgia, even during the Soviet period, was not a major industrial center, and is unlikely to become one in the near future. The infrastructure for an economy built around heavy industry does not exist; and would be costly and probably foolish to construct.

Other economic challenges may not be as clear; and recognizing them may not be politically easy. For example, although Georgia’s location may make it, in some respects, an attractive transit country, location works against Georgia in other ways. Georgia’s development as a tourist destination is hindered by bordering three countries, or in the case of Russia, a part of a country, that are not known in the west as attractive tourist destinations. This means that the idea of adding a four or five day trip to Georgia to a larger vacation is difficult, causing many potential tourists not to visit Georgia.

Similarly, Georgia’s educations system is central to the country’s economic development, as producing competent and educated workers, entrepreneurs and professionals will help Georgia grow and develop economically. However, Georgia’s education system faces challenges beyond those faced by all small and poor countries, that include issues of limited resources and facilities as well as difficulties attracting and retaining talented scholars at the university level. Georgia schools also play an important role in transmitting the Georgian culture through language, literature and music from one generation to the next. This makes it possible for the Georgian nation to survive and continue, but it also has other consequences. It means that a great deal of classroom and study time is spent on skills that, while important for many reasons, are of very limited value in the international economy.

Some of Georgia’s economic strategic advantages are reasonably well known. These include, at least in the eyes of most, Georgia’s location as the crossroads of Europe, Asia and the Middle East, the natural beauty and tourist attractions of the country and the business climate, currently ranked as the 15th best in the world by the World Bank. Georgia also has other advantages and resources that should inform its economic direction.

Georgia has long been a country with enormous agricultural resources. Georgia’s agricultural wealth lies not in rolling fields of wheat, but in soil that will grow fruits, including grapes for wine, and vegetables that taste good and are harder to produce in colder climates. In American terms, Georgia’s agriculture looks much more like Northern California’s than like Nebraska’s. Georgia’s combination of productive agriculture, affordable labor and problems of unemployment suggest that food processing-turning tomatoes into ketchup, nuts into nut butters or oils and fruits into jams-on a large scale, is a potential direction of economic growth that would allow Georgia to exploit its comparative economic advantages.

Similarly, Georgia has long been a cultural center that has made an impact disproportionate to its size. Georgian films, including most recently Tangerine, a Georgian-Estonian collaboration that has been nominated for an Oscar for best foreign film, have received recognition well beyond Georgia’s borders. A retrospective of Georgian film at New York’s Museum of Modern Art in 2014, is further evidence of this. Georgian contributions in other fields such as dance, music and design ranging from clothing to websites have also increase in recent years. These are areas where Georgia has long been able to make an impact and where investments in infrastructure and the need for capital is not as substantial as in other sectors. In a small country like Georgia, a vibrant arts, design and culture sector can make a significant economic impact.

The descriptions of Georgia’s economic strengths and weaknesses are illustrative and far from comprehensive. Nonetheless, the principle that Georgia’s economic development lies in a sober understanding of its comparative strengths and weaknesses, rather than a cookie cutter approach, based on platitudes and uncritical analysis of the country, remains true. This understanding needs to lead to a vision and plan for development, without that Georgia’s economic future will be at the mercy of a grab bag of uncoordinated policies, hopes and largely meaningless statements of support by well meaning friends.

The Georgia Analysis is a twice monthly analysis of political and other major developments in Georgia. If you would like to be on the Georgia analysis mailing list or are interested in more research and analysis for your business, government or other organization, please email lincoln@lincolnmitchell.com.

Lincoln Mitchell